Joseph Stack’s beef with the tax law of the USA

The engineer who flew his plane into IRS, thus killing at least one person on the ground apart from himself, had a concrete complaint. I just heard Rachel Maddow say that she couldn’t find anything concrete in his posting. Well, I could. Check the conference committee report on IRS section 1706, the amendment of 1978.

Basically, it is about if a worker should be counted as an employee or an independent contractor (in Swedish: anställd eller egen företagare). What that amendment did was to say that engineers and some other professions should never be considered independent contractors. That’s kind of harsh, but now to the part that is mind-boggling: Even if they work for another corporation they are to be considered an employee of the hiring corporation (provided that they control the corporation they work for). This was Joseph’s beef.

Consider this example. Company A hires company B to do a job, and company B subcontracts company C to provide engineer D to carry out the services. Company C may have thousands of employees, but it is owned by engineer D, so he controls it. Therefore company B must pay taxes for D as if he was an employee.

What happens is of course that the overhead of company C gets slapped with personal income tax and social security fees! Of the little that is left, company C must then pay its corporate taxes, its staff, their income taxes, their social security fees, and its capital gains taxes.

The result I would expect from this tax provision is of course the death of the small engineering firm in the US. I came here in 2002, when this draconian law had been doing its work for almost a quarter of a century. I soon noticed that there was no point in looking for engineers here. Much better to turn to Sweden for such services. And now I think I may know why. This law may effectively have pulled the rug from under US entrepreneurship, but it has not affected the ability of foreign engineering suppliers to compete on the US market.

This is an “aha-experience.” I did not know about this rule (as it doesn’t affect me), but it may potentially explain A LOT when it comes to why the US has lost its economical leadership in the world. Yes, “has” lost. The full effect of the downturn of the US industry has not yet been seen, as it will continue for years due to the lack of engineers and entrepreneurs in the technical fields, but the pole position is surely lost.

Returning to the law, it violates basic common sense and decency. A corporation is a legal person and this personhood must be respected by the tax code. The amendment mentioned violates the personhood of company C. Thereby it also violates the rights of person D to freely engage in business. I would think there might be a good case to be made for this violating person D:s civil rights, and indeed human rights.

Too bad Joseph Stack is dead, as I would have wanted to see this go through the legal system to the highest level in the US – and internationally if need be. This really sticks out as a nail in the eye of the “land of the free.”